Equilibrium is explained as follows:
Equilibrium is the state in which there are no shortages and surpluses; or we can say that the quantity demanded is equal to the quantity supplied.
Equilibrium price is the price prevailing at the point of intersection of the demand and supply curves; in other words, it is the cost at which the quantity demanded is equal to the quantity supplied.
Equilibrium quantity is the quantity which clears the market; or we can say that it is the quantity at which the quantity demand is equal to quantity supplied.
Algebraic Representation of Equilibrium is given below:
If we have the given demand and supply functions then,
Qd = 100 – 10 P
Qs = 40 + 20 P
Qd = Qs
100 - 10P = 40 + 20P
20P + 10P = 100 - 40
30P = 60
P = 60/30
P = 2
Putting the value of cost in any of demand and supply equation,
Q = 100 – 10x2 (or 40 + 20x2)
Q = 100 – 20
Q = 80
The equilibrium price we obtain is 2 and the equilibrium quantity is 80.
Equilibrium can shift if any of the following happens:
• The Demand Curve Shifts.
• The Supply Curve Shifts.
• Both the curves Shift.
The symbol “Æ” or “Ç” shows rise and the symbol “Å” and “È” shows a reduction while the symbol “~” shows that the particular thing remains same.